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LİDAŞDER EXPECTS MORE INVESTMENT IN LICENSED WAREHOUSING

06 April 201714 min reading

Hikmet ÖZKAN, LİDASDER: “A stable and profitable market of agricultural products should be created for manufacturers, traders and industrialists to ensure sustainability in manufacture of agricultural products. As is the case with the developed countries, licensed warehousing should be proliferated across Turkey to establish and sustain this market.”

hikmet_ozkan_lidasderDue to unhealthy storing conditions in Turkey as in many countries, grain loss is getting higher every year. Inadequacy of storing conditions negatively influences the balance of supply and demand in the market. Turkey enacted the Licensed warehousing Law in 2005 to solve these problems. However, the first licensed warehousing company was established in 2010 under the leadership of TMO-TOBB. With this example, the government intensely supports the licensed warehousing companies of which the number is rapidly increasing. As a result, the number of these companies has reached 49 by March 2017.

LİDASDER, Association of Licensed Agricultural Product Warehousing and Authorized Classification Companies, was established 3 years ago in order to represent this developing industry, and to increase and improve the activities of Turkish licensed warehousing and authorized classification.

Saying that the association has 29 members now and the number of members is increasing everyday by developing licensed warehousing, Hikmet Özkan, Vice-President of LİDASDER, shared his ideas about the licensed warehousing, its achievements and future.

First of all, could you tell us about yourself and the Association of Licensed Agricultural Product Warehousing and Authorized Classification Companies (LİDAŞDER)? What are the aims and objectives of your association? I am an agricultural engineer. I worked at various positions at the General Directorate of Agricultural Products Office (TMO) and as the Head of the Department of Purchasing and Warehousing. During this period, I was the member of the executive board and vice-president of TMO-TOBB Licensed Agricultural Warehousing Inc., which is the first licensed warehousing company in Turkey. In 2012, after my retirement from TMO, I took an executive position at a private licensed warehousing company, and managed the licensing activities at the first private licensed warehousing company in Turkey. I gave lectures at various meetings and seminars on licensed warehousing, and published articles on the issue in various magazines. Currently, I am one of the founding members of the Association of Licensed Agricultural Product Warehousing and Authorized Classification Companies (LİDAŞDER), and also the vice-president of LİDAŞDER, as the representative of Tokay Consultancy Ltd, which I founded.

LİDAŞDER was founded in 2014 and is based in Ankara. We have 29 members. The number of our members is increasing day by day with the development of licensed warehousing. The aim of our association is to ensure efficiency and development of licensed warehousing and authorized classification activities, to work towards solution of existing issues, to offer solutions by submitting problems to relevant public authorities and organizations and to support persons and entities involved in works and researches in this area. Besides, our other objectives include establishing cooperations, improving solidarity among our members, protecting their rights and interests, to offer them guidance in professional, scientific, social, technical and economic terms, and representing them at national and international platforms.

We aim to contribute to development of licensed warehousing in Turkey and to bring it to the level it deserves with the existing and future licensed warehousing and authorized classification companies.

What proportion of the licensed warehousing and authorized classification companies in Turkey are represented by your association, which was founded 3 years ago? Today, there are 49 licensed warehousing companies with a capacity of 5,481,800 tonnes in Turkey, and 19 of these countries have been licensed for 862,840 tonnes. 16 out of 19 licensed companies are our members, which corresponds to 84 percent representation.

Licensed warehousing has recently been on the agenda. Could you tell us about the development process and functioning of licensed warehousing system? Licensed warehousing system in Turkey is regulated by the Code of Licensed Agricultural Product Warehousing no. 5300, which was published in Official Gazette no. 25730 dated 17.02.2005, and other Directives and Notices issued under this legislation.

Although the code was published in 2005, the first licensed warehousing company was founded by TMO and TOBB under the name of TMO-TOBB Licensed Agricultural Warehousing Inc. in 2010. The company started its first licensed warehousing application in 2011 at the 40,000-tonne facility in Polatlı.

The applications of TMO-TOBB Licensed Agricultural Warehousing Inc. set an example, and more people became interested in licensed warehousing thanks to the incentives, and licensed warehousing of olives, cotton and hazelnuts as well as grains was started. As of March 2017, the number of established licensed warehousing companies has reached 49.

To summarize, licensed warehousing system functions as follows; Founding and licensing procedures of licensed warehousing company are managed by the Ministry of Customs and Trade. Warehousing facilities larger than 20,000 tonnes of capacity that comply with the criteria specified in the relevant directive can be licensed. Licensed business starts accepting products on the basis of a specific warehouse rental fee that is approved by the Ministry of Customs and Trade. It is mandatory for the licensed warehousing business to deliver accepted products to the owner in the same amount and with the same quality. The products delivered to the licensed warehouse are analyzed and classified by the authorized classification laboratory that has been authorized by the Ministry of Customs and Trade, and then stored and an “Electronic Product Sheet” is issued for the product.

Owners holding electronic product sheets can trade their products on the electronic media or withdraw them at any time, using the platforms on trade stock exchanges authorized by the Ministry of Customs and Trade, since a product specialization stock exchange has not been established yet.

After the Product Specialization Stock Exchange is opened, for which founding procedures are still in progress, the products in licensed warehouses can be traded at national and international markets. The persons who are to sell or purchase the goods in the licensed warehouse should have a bank deposit account or be a member to the authorized stock exchange platform. Following registration of the trading transaction by the stock exchange, the transfer between the accounts for the trading transaction is performed by TAKASBANK considering the data created at the Central Registration Organization.

There are many problems in the warehousing of agricultural products in Turkey, which have been discussed for many years. Could you tell us about these problems? How does the licensed warehousing system contribute to the solution of these problems? A total of 40 million tonnes of grain, pulses and oil seeds are produced across Turkey. Furthermore, Turkey produces significant amounts of hazelnut, dried apricots, pistachios, olives, olive oil, dried grapes, dried figs, etc., for which Turkey is among the top manufacturers and exporters. The manufacturers in Turkey have to sell their products during the harvest time, instead of holding them, since they manufacture on small-scale lands and the warehousing and financing facilities are scarce.

On the other hand, buyers have to spread their purchases across the year depending on consumption, since they lack the sufficient warehousing and financing products offered during the harvest period. Therefore, the market prices in the harvest time may be determined against the benefit of manufacturers.

Licensed warehousing system is an important solution, as it is in developed countries, to ensure sustainability of manufacture of strategically important agricultural products and to eliminate these deficiencies. Licensed warehousing system ensures warehousing at high standards and quality. Financing with convenient terms can be obtained from financing institutions by placing a lien on electronic product sheets which are issued for the products stocked by manufacturers, traders and industrialists at these warehouses.

This allows manufacturers to hold their products at licensed warehouses without selling them during the harvest period, and sell them at better prices after the harvest period. Meanwhile, traders and industrialists will be able to store their products at licensed warehouses, without bearing investment costs for warehouses, and they will be able to get more financing and more products during the harvest period. Thus, with the licensed warehousing system, the imbalance between supple and demand during the harvest period can be significantly mitigated.

Which products are convenient for licensed warehousing? What are the advantages of licensed warehousing system for the stakeholders? Currently, licensed warehousing is available for various products, including grains, pulses, oil seeds, cotton, hazelnuts, olives, olive oil, dried apricots and pistachios. Licensed warehousing will also be available for dried grapes, figs and other agricultural products that can be classified, stocked and that have a long shelf life, when the relevant legislation is in place.

The stakeholders in licensed warehousing are manufacturers, traders, industrialists, stock exchanges, banks and insurance companies. Licensed warehousing system aims to:

• Mitigate the fall in prices due to the excessive supply of agricultural products during the harvest period,

• Facilitate and register trading of agricultural products,

• Ensure development of free market by minimizing the impact of intervening agencies on the market,

• Offer convenient financing from financing companies to manufacturers, traders and industrialists, via “Electronic Product Sheets” issued for their products in licensed warehouses,

• Conduct trading of agricultural products with products that are widely accepted, compliant with specified standards and analyzed and classified by independent laboratories; encouraging quality production and creating a reliable market,

• Allow sellers to simultaneously access all buyers on electronic media and make sales with advance payment without incurring risks,

• Allow buyers to purchase products that are reliably preserved at standardized and modern warehouses, via electronic media,

• Ensure Turkey assumes an important role and gets a fair share in trading of agricultural products in the Middle East, Balkans, Turkic countries and Asia, by establishing a product specialization stock exchange and trading products in licensed warehouses at international markets.

Does to government offer any incentives or supports to licensed warehousing system? Could you give us some information on these supports, if any? The government offers various tax exemptions, warehouse rental support and investment support to help to develop and proliferate licensed warehousing. Under the Law no. 5904 on Amendments to Income Tax Code and Various Codes, which was published in Official Gazette no. 27277 dated 3/7/2009, until 31.12.2018; The manufacturers who stock their products at a licensed warehouse and sell them via Electronic Product Sheet will be exempt from 2% withholding tax, and the earnings from exchange of Electronic Product Sheets which are issued for the products at licensed warehouses will be exempt from income tax, corporate tax, and Value Added Tax (VAT).

A decree by the Cabinet of Ministers, which was published in Official Gazette no. 29147 dated 16.09.2014, declared that a 5-year rent support will be offered for the products stored at licensed warehouses. According to the decree, a rent support at 50% of the rental fees to be approved by the Ministry of Customs and Trade will be offered up to 3 TL per ton/month will be offered for wheat, barley, rye, oat, corn, paddy, rice, lentil, chickpea, beans, peas and sunflower stored at licensed warehouses, 7 TL per ton/month for cotton, and 10 TL per ton/month for hazelnuts, olives, olive oil, dried apricots, pistachios, dried grapes and dried figs.

Under the Resolution on Awarding Low-Interest Investment and Management Loan for Agricultural Production by Ziraat Bank Inc. and Agricultural Loan Cooperatives, which came into effect with the Decree of the Cabinet of Ministers no. 2016/9665 dated 27,12.2016, a Statement was published in the Official Gazette no. 2001 dated 08.03.2017 by the Ministry of Food, Agriculture and Livestock Breeding, which states that existing/future licensed warehousing businesses will be offered loans up to 5.000.000 TRL, with 50% discount for the investment period, and 25% discount for the operation period, calculated over the current interest rates. (The relevant Ministry continues to work on increasing the amount of loans and the interest rate discount).

With the Resolution no. 2012/3305 dated 15.06.2012 on Government Benefits in Investments and the “Declaration on Implementation of the Resolution on Government Benefits in Investments” no. 2012/1 which was published by the Ministry of Economy for purposes of implementation of said resolution, licensed warehousing services were included in the investment areas to be awarded regional benefits.

Bülent Tüfenkçi, Minister of Customs and Trade, made a press statement on 02.03.2017, which pointed out that they are working on the following benefits for the licensed warehousing operations.

• We are further increasing rent and warehouse construction support.

• We are increasing investment support during construction from 5 million to 10 million TRL.

• We are offering transportation support.

• We are covering the warehousing costs of small cooperatives.

• We are covering the laboratory fees.

• We were covering 50% of the rental fee, and now we will cover 75%.

• They will benefit from the 5th regional incentives.

• We will also cover half of the interest rate on loans which are issued by submitting electronic sheets as security.

The Agricultural Products Office (TMO) is building warehousing facilities using the long-term rental guarantee method. How will these warehousing facilities impact the licensed warehousing system? In 2016, the General Directorate of TMO started trading with the electronic product sheets that are issued for the products stored at licensed warehouses. TMO officials stated that TMO will stop physical purchasing, and perform intervention purchases and sales via licensed warehouses. To this end, the General Directorate of TMO started the process of “Construction of Grain Silos Complying with the Licensed Warehousing Criteria by means of Long-Term Leasing to Private Sector.”

In this scope, companies were invited to sign a contract for 640,000 tonnes at 11 locations in the first phase and for 1,490,000 tonnes at 30 locations in the second phase. Meanwhile, TMO signed agreements to build licensed warehouses at certain locations, with its affiliate company TMO-TOBB Licensed Warehousing Inc. and Agricultural Loan Cooperatives, and collected bids from licensed warehousing companies to manage some of its warehouses which were fit for licensed warehousing. These policies of TMO are important to proliferate licensed warehousing across Turkey. Our association would like to thank the General Directorate of TMO for these actions.

How many licensed warehousing companies are currently established in Turkey by products and what are their capacities? What is the deficit of Turkey in terms of licensed warehousing? Currently, there are 49 licensed warehousing companies with a capacity of 5,481,800 tonnes across Turkey. 19 of these companies continue licensed warehousing activities with a license for 862,840 tonnes. 17 of these licensed companies (840,840 tonnes) are operating in grains, one in olives (5,000 tonnes) and one in cotton (17,000 tonnes).

Licensed warehousing of grains, pulses and oil seeds has reached a certain capacity in various cities in Central Anatolia and Mediterranean region, but other regions still need warehouses. For other products than grains, licensed warehousing has not reached a satisfying level.

What should be done to proliferate licensed warehousing system? The tax exemptions by the government will expire on 31.12.2018, and warehouse rent support will expire on 16.10.2019. However, these exemptions and supports should be further increased, and the problems in finding locations for licensed warehouse investors arising from agricultural lands should be eliminated, the product specialization stock exchange should be established as soon as possible, and decrees should be issued for other products which are not yet subject to a decree for licensed warehousing, relevant public organizations and non-governmental organizations should promote the idea in cooperation, which will help to proliferate the licensed warehousing system.

What kind of activities does your association perform to proliferate this system? What are your final remarks? Since its foundation, our association has communicated the problems and suggested solutions for the licensed warehousing system as well as information on what to do to further improve the existing practices from its members to relevant public authorities in writing, and has raised these issues at various meetings.

Furthermore, we have provided information to manufacturers, investors and stock exchanges to promote licensed warehousing, and performed interviews with numerous TV channels and magazines. We are planning to continue our efforts in the future.

Finally, a stable and profitable market of agricultural products should be created for manufacturers, traders and industrialists to ensure sustainability in manufacture of agricultural products. Licensed warehousing should be proliferated across Turkey to establish and maintain this market, as is the case in developed countries. Therefore, we believe that the government will continue its incentives and support, and recommend investors to focus on licensed warehousing.

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